Compensation Cafe

Where Do These Numbers Come From?

You're interviewing for a new position and prospects are looking good.  You feel that they're going to extend an offer.  You know what salary you want, what you need, what you deserve, but you don't know whether your prospective employer sees your value in the same terms.  You can't read their signals.

When they do present an offer of employment the starting salary may be a good figure, or it may not - but where did that number come from?  And could you have anticipated it?

The employment offer that a company extends a candidate doesn't drop from the sky like a brainstorm of intuitive thought.  Oh-oh, let's try this!  Nor does the offer necessarily mirror what you think you deserve.  It does relate though, to what the company feels is appropriate for the position they have, what they can afford to pay, and what amount fits within their internal pay structure.  If the figure is also the amount you desired, that's icing on the cake.

Candidates often think that what they're offered has a direct connection to what they were making before, or what they asked for.  If that's the way you feel, you'd only be partially correct - because it's not always about you.

Every company has a decision-making process they follow as a guide in constructing an offer.  This process is applied to some extent for every candidate, no matter what final figure is ultimately used in the offer.

First and foremost, the company will have either a hiring range or at least an estimate of what they want to spend (what they were paying the last incumbent, pay rates of similar jobs or peers, what has been budgeted, etc.).  Thus to the company the job under search already has a value, so they can anticipate what they will likely pay, even before they've met you.

So they have a number in mind.  Now you come along and seem like a strong candidate.  They will need to know how your numbers (wants and needs) compare with what they are prepared to offer.  Bear in mind that they may be reluctant to offer too small or too large an increase over your previous compensation.

Do not attempt to withhold your compensation history - or in any way confuse the issue, as this tactic might explode in your face.  The employer might simply say "fine," and move on without you.  As they never like surprises, especially when it shows that they didn't know enough about you before making the offer, any reluctance to explain your compensation history would be a huge red flag.

While hiring guidelines are usually set up for recruiters to follow, exceptions can and will be made, but they'll likely require some justification, some "selling."

Offer amounts can also be restricted by policy or precedent:

• Starting salaries may not exceed salary range midpoints

• Hiring below range minimum may be prohibited

Internal equity is also very important, and may dictate an employer's degree of flexibility.  They cannot afford to anger two employees in order to please one - and they don't know you.

Many candidates lose sight of the company's perspective, thinking of their own value in the marketplace - what they deserve, given their personal background and experience.  For its part the company is trying to fill a job for which they already know the value.  That is what commands the offered salary, not what the candidate is necessarily worth in a universe of possibilities.

Consider a hospital seeking to hire a general practitioner, and a brain surgeon applies for the position.  The brain surgeon may well be worth the going rate for their skill set, but the company is hiring a different position, with a different (lower) value.  They don't need to pay, and likely can't afford the services of the brain surgeon.

What to do?  Ask about the hiring range, how much the company expects to pay for a qualified candidate.  They will have a number in mind.  Best you know up front in case there is a disconnect in valuing your services, lest you both waste time.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Image: Creative Commons photo by quaziefoto

Hey, Where'd My Roadmap Go?

Have you ever been lost? I mean really lost, like you have no idea where you are or which way is up. That's how some federal contractors felt when they heard the news that the OFCCP is going to rescind the compensation standards and guidelines. Director Shiu made the announcement at the National Industry Liaison Group Conference earlier this month. Since then, a lot of employers have been experiencing what some have referred to as an "informational void". 

What's the big deal about the compensation standards and guidelines? They served as a roadmap for OFCCP compliance officers and employers alike. The standards codified how the OFCCP was enforcing systemic compensation discrimination. They gave employers some insight into the OFCCP's process, and helped them proactively identify potential problem areas. Since they were published in June of 2006, nearly every federal contractor relied on them to perform the required compensation self-evaluation. Even employers who don't have federal contracts used them, and I've relied on them in designing compensation analyses for my clients.

And now they're being rescinded with no replacement in sight. The OFCCP hasn't given us any idea of what the replacement will look like, or when a new set of standards will be published. This uncertainty leads to speculation - will they abandon multiple regression analysis? If they do, what will they use? A means test? Matched pairs? The "Four-Fifths Rule" popularized by the EEOC? The OFCCP and the EEOC have promised greater collaboration, so it's possible...

Why are they rescinding the standards and guidelines? Here's what Director Shiu had to say in her keynote speech at the NILG:

OFCCP will rescind the 2006 Guidance and will issue an Advanced Notice of Proposed Rulemaking to solicit your ideas and views about the new wage data collection instrument.

What? A new wage data collection instrument? What does that have to do with compensation standards and guidelines? It ties back in to my earlier post on the National Equal Pay Enforcement Taskforce. Part of the agenda of NEPET is to identify ways to collect wage data from employers. With this flood of data, regulators are supposed to be able to better identify employers who are out of compliance. If we're speculating, my guess is that the replacement guidelines will rely heavily on this data collection tool, and the whole process will be a lot more automated than it is now. The current administration is focusing on compensation issues: gender pay equity, wage and hour compliance, misclassification of employees, etc., The Department of Labor is continuing to ramp up enforcement efforts. In order to keep up with the workload of increased enforcement, some kind of automation is needed. Remember the EEOC backlog? The OFCCP remembers, and doesn't want to get itself into the same kind of situation. My guess is that all of this new data will be fed into an analysis program or algorithm, and the program will simply spit out an "OK" or "VIOLATION!" result.

My concern with this - and remember, this concern is based on my previous speculation - is that employers are no longer going to have the guidance they need from the OFCCP. Rather than providing employers with a roadmap, the OFCCP is now going to collect your data and tell you where you are. It's kind of like heading out on the road, not knowing your ultimate destination, and the only way you have of getting there is someone telling you "drive 50 miles north. When you get there, stop, and I'll tell you what to do next." It might get you where you're going, but it's a long and difficult process.

My advice for employers is this: you're not as lost as you think you are. Don't wait for the OFCCP to come and rescue you with new compensation standards and guidelines. You know your ultimate destination: non-discriminatory compensation policies and practices. Chances are, you're already on your way to that destination. Use what you already know. Keep a clean house when it comes to documentation. Perform compensation self-audits using reliable statistical tools. When in doubt, ask your fellow travelers or the gas station attendants who happen to be experts in equal employment opportunity. If we stay proactive, it's likely that we'll get to the final destination before the OFCCP does.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. For more than a decade, she's been working with businesses and government agencies providing expert EEO analysis. Stephanie has published several articles on examining compensation systems with respect to equity. She is the host of The Proactive Employer, and is the Director of the Equal Employment Advisory and Litigation Support Division of MCG.

Market "Downgrades": Bringing Tough Calls to a Conference Room Near You?

The world is changing and the impact of this is making its way to the doorsteps of HR and compensation professionals, bringing with it some thorny challenges and difficult decisions.

Unless you're completely buried in the wind-up to year-end, you've probably caught wind of the pay drama that has been taking place in and around the Mott's apple juice plant in Williamson, New York.  Dr. Pepper Snapple Group (DPSG), the company that owns Mott's, is seeking a $1.50 an hour wage cut, among other concessions, from its hourly workers there in a reported effort to bring the plant's costs in line with "local and industry standards."  According to the company, Mott's workers average wages of $21 an hour compared with a $14 an hour average hourly wage for comparable jobs in the area.  DPSG reported net income of $555 million in 2009 (on revenues that were down 3%), following a los of $312 million the previous year.  The union representing Mott's workers counters that the plant's hourly employees are highly experienced and deserve well more than $14 an hour - from a company that is earning record profits.

The story has generated a lot of debate (just take a look at the comment stream of the second NYT article).  From the standpoint of a compensation pro, though, it also raises many questions.  For starters:  How did plant wages even get to this point?  (It is unlikely that management just woke up one morning and discovered that they were paying 50% over local market norms.) And... we know from media reports that DPSG made over $500 million in profits in 2009, but how have Mott's - and this particular plant - performed?  What about other Mott's plants and at the plants of Mott's competitors in the beverage industry - what do we know about the state of wages and profit performance in comparable settings?  Are competitors doing well on all counts - or shuttering plants and sending work overseas?  What was the overall business case that drove the decision?

My objective here isn't to debate the merits of either party's case, but rather to put us all on notice that the uncertain economy and the labor market turbulence following in its wake are bringing tough challenges and decisions our way - if not today, then in the not-so-distant future.  Market rates for different roles and skill sets are going down as well as up these days.  This will prompt difficult questions that we, as stewards of our organizations' compensation plans, will likely be obliged to weigh in on.  The onus is on us to be considered and thoughtful in our response.

Base wage or salary is the foundation of the employment relationship.  Mess with it, for good reason or not, and you mess with the very core of the value exchange between worker and employer.  The repercussions might surprise you.  (This is just one of the reasons - I'll say it again - for the growing emphasis on variable pay, which creates earning and reward opportunities outside this "sacred core".)  I'm not suggesting that there will never be circumstances - whether driven by market conditions, employee performance or what have you - that warrant base reductions.  I'm just saying that these decisions, when they must be made, had better:

• Reflect a strong, clear and defendable business case
• Be made considering the perspectives and likely reactions of all stakeholders (owners/shareholders, affected and unaffected employees, customers, etc.)
• Be implemented in a manner consistent with any and all core values the company professes to hold

And certainly the involvement of a collective bargaining unit brings its own set of dynamics to this scenario.

My point is simply this:  Tough calls could be coming soon to a conference room near you.  Are you up to the task?

Ann Bares is the Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  Follow her on Twitter at @annbares.

First, You Eliminate Pay as the Solution

My esteemed colleague Mercedes McBride-Walker signs her emails with this slogan: 

 

"95% of the time, the issue is something other than money. So why am I not out of a job?" 

 

She makes a very good point.

Most of the people I hang with are still pretty much compensation people rather than Talent Managers or Total Rewards professionals, so when they are presented with a problem, guess what gets addressed first?  Their instinctive first “fix” is usually to throw money at it.  It’s almost like we were politicians. 

When your only tool is a hammer, every problem looks like a nail.   Those whose power and authority comes from compensation expertise tend to rely excessively on that element as the universal cure for all ills.  It becomes the same old story… first you give them money … then, when that doesn’t work, you try other solutions until you finally work your way down to the real causal agent, by trial and error and at great expense of  time, effort and money. 

We are not the only ones at fault.  It is all too easy for managers to assume that pay can solve any problem.  Even when they are wrong, the recipient of the inappropriate largesse will typically display some gratitude and may demonstrate temporary improvement.  Plus, even if higher pay doesn’t create a compression wave, the manager still gets a bigger budget.  Those who correctly identify a solution that does not involve compensation face an immense amount of resistance to any fix more difficult than simply writing a check.  After all, if an issue can be corrected with cash, it is not a management problem but only a cost item. 

Not until I held credibility as a compensation expert would anyone believe my claims that pay was usually not the issue in any given situation.  Realistically, if you don’t deal with compensation first, dispelling that as the solution, no one will listen to you; all will claim it’s simply a matter of money. 

We human resources people still have a terrible habit of prescribing solutions without ever performing a diagnosis.  The seductive temptation to throw money at every problem cannot be defeated without strong and confident compensation people willing to reject inappropriate solutions.

Ironically, we need more pay experts in order to correct non-pay problems. 

Do we have them?  And will we continue to grow them?

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that  (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.

Image: Creative Commons Photo "my to do list" by koka_sexton

Combat Fear with Appreciation * 9 Signs You Work in an Appreciative Workplace

How would you describe the atmosphere in your workplace? Fearful or appreciative? 

A recent article in Bloomberg Businessweek highlight the rise of fear-based cultures as employees become focused on preserving their jobs at any cost and employers feel the pressures of the recession and the actions taken to keep the company going.

The article offered 10 signs of a fear-based workplace (quoting):

1. Appearances are everything.
2. Everyone is talking about who's rising and who's falling.
3. Distrust reigns.
4. Numbers rule.
5. And rules number in the thousands.
6. Management considers lateral communication suspect.
7. Information is hoarded.
8. Brown-nosers rule.
9. 'The Office' evokes sad chuckles, rather than laughs.
10. Management leads by fear.

I can’t argue with that. If you have even a few of those items in combination in a single workplace, people are working out of fear, not engagement – which only serves to suppress performance numbers further.

But the article got me thinking. What would be the signs of an appreciation-based workplace – a work environment in which employees at all levels continuously encourage each other by recognizing and praising them for excellent efforts and achievements? Here’s my list:

9 Signs of an Appreciative Workplace

1. Employees are always looking over their shoulders … so they know when their teammates should be praised.
2. Managers are focused on catching employees in the act … of doing good.
3. People tell the boss what he wants to hear … that he’s doing good work, too, since recognition is encouraged both up and down the chain.
4. Everybody is focused on maintaining the status quo … of a culture of appreciation that encourages constant innovation, questioning, advancement and improvement.
5. Drama is constant … as employees are publicly recognized and celebrated for their achievements (if that’s the kind of recognition they like, of course).
6. The issue of trust … is rarely an issue as communication is frequent and constant flowing from employees to managers and vice versa.
7. Numbers are critical … as managers are encouraged to meet MBOs for recognition to ensure appreciation reigns in the workplace
8. Performance is closely monitored … as peers and managers look for opportunities to reward progress as well as results.
9. The company values plaque is taken off the wall … as they come alive in the daily work of employees who are frequently recognized for demonstrating the values.

What’s your workplace like? What additional signs of fear do you see? More importantly, what would you add to the list of signs of an appreciative workplace? What’s your advice for implementing this in the workplace today?

As Globoforce’s CMO & Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin, Montreal and Boston. Follow Derek on Twitter at @globoforce.

 

Who Cares About Midpoint Movement?

I don't get it.  Can someone help me understand?  Why are some organizations interested in what other companies are planning to do with their midpoints next year?  I presume that's the case because there are surveys out there compiling and reporting such data.  But who really cares?  Aside from anecdotal information I have never understood the importance of this reporting.

To be fair, perhaps my experiences are the exception, because I've never used that data in program analysis, or even reported it.  But somebody must be using it.  Somebody.

I can only guess that I've missed something; maybe I should taken another WorldatWork class, because the issue has never arisen from any employer I've dealt with, either as an employee or an outside consultant.  Which leads me to ask, do some companies actually recommend raising their midpoints on the basis of a survey(s) announcing what other companies are doing?  Is that metric as important as what is being paid for particular positions, or what the average merit spend might be next year?  How does projected average salary structure movement relate to my company's unique situation?

Can you envision recommending to senior management that midpoints be raised by X% because that is the projected average midpoint increase of other companies?

For me the focal point of survey analysis has always been to determine the competitiveness of our current midpoints.  In planning for next year we should adjust those midpoints to either remain competitive (our midpoints are already there), to improve our standing (our midpoints lag the market), or freeze them (midpoints already pegged above market rates), no matter what a survey reported was common practice.  Am I wrong here?  I have always thought that my company's salary structure should move in relation to our own competitiveness, regardless of what anyone else is doing.  Otherwise we could be making improper adjustments - either too much or too little.

And what about the expense involved?  Contrary to what some pundits have assured me from time to time, midpoint growth can create costs.  There is no free ride.

• When an employee's base pay drops below salary range minimum on January 1st, do you cover that amount - or wait until the next review?  Whenever that might be.  The fair thing to do would be to raise the employee to minimum and then (or later) grant a merit increase on top of that.  Extra cost though, right?

• Higher midpoints push experienced employees further from the internal "going rate" - creating pressure to restore the balance.  Have you ever explained to a long service employee why they weren't being paid at least the midpoint?

When are these midpoint estimates made, and how accurate are they?  They're really guesstimates, and many times the questionnaire is filled out without due consideration, just to get the form completed and sent away.  After all, most companies won't confirm their new structure commitment until @November (senior management sign-off), while the survey questionnaires are completed in mid-summer.  So how good a guess do you make in August?

Btw, a company's salary structure (grades and salary ranges) are usually segmented along the lines of hourly, non-exempt, exempt professional and management employees.  To gain a clear picture of your competitive marketplace you should consider that each segment is moving at a different rate.  For example, it's likely that management pay is growing at a different rate than for hourly employees.  Suggesting that only a single number would reflect your entire population would distort the reality of your multiple markets.

Now I suppose there may well be companies out there that have changes to their reward programs contractually tied to "market movement" or even structure (midpoint) growth, but do you think there are that many so governed?

So, can someone tell me why analyzing other company's guesstimated midpoint movement is important?  I'd really like to know.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Image: Creative Commons photo by david_shankbone

Are Employee Engagement Surveys Like New Year’s Resolutions?

Retention during bad times is easier than when times are good.  It’s a fact; people look for safety in dark times. Ironically, when it comes to retention, bad times are what keep HR pros awake at night.  There is the belief that when business turns upward, employees become motivated to start looking for engagements outside their current jobs.  This concern of not being able to retain top talent is often reinforced by the surveys employers look to for “data”.

In the past few months, nearly every major consulting firm has released a study showing employee engagement is at its worst point in years. Fears are confirmed by stories being woven around a common theme.  This theme claims high producing employees are the most likely to look for new jobs in a market upturn. Surveys seem to support this.  I can’t help but wonder if some of these employees who are ready to leave are the same people who in December 2009 told major media surveyors that they made a New Year’s Resolution to lose 20 pounds and start exercising 3 times a week.

Gyms capitalize on the fact that the ratio of resolutions to execution is very low. Therefore, no one scrambles to open new gyms or make significant changes to gym access in order to accommodate the hordes of “Resolutionists”. I don’t believe that most employee engagement surveys take this phenomenon into account.

The employees I have interviewed often list the reasons they have to leave. When pressed, they admit that they are unlikely to move if management would merely make some tweaks to demonstrate things will “start improving”. For example, employees often cite how much they enjoy their coworkers or how much they dislike the interview and hiring process. How many companies fully utilize these keys to retention?

The truth is there will always be attrition among your best people.  It can be argued that much of that attrition is positive.  It can allow you to change outlooks while evolving in new directions. Downturns slow attrition but this comes with the potential cost of stagnating the company. When the market improves it may feel like all your good employees are leaving simultaneously. Many of these people would have already left earlier if new positions were available.  If you plan correctly your company can benefit from this process by making little changes that will keep much of your talent satisfied. You can benefit from this process by picking up your peers' great people at the same time.  You will probably find that making a few small changes is more effective than figuring out how to retain a few good people who would have left regardless. Your efforts and resources may be best spent on those who plan on staying rather than keeping those who are set on leaving.

I don’t think that engagement is any more or less critical today than during the proverbial “good times”. Perhaps a greater priority should be placed on having top performers document the things they do and train the people around them. Shared knowledge lives on. Prepare now to cushion the impact when you lose some of your best and brightest (and trust me you will.) Take the opportunity to recognize, and invest in, up and coming stars around you. As a bonus new talent can walk into your company to work amongst well-trained and motivated peers. 

Dan Walter is based in San Francisco, CA and is the President and CEO of Performensation, a firm focused on improving its clients performance and equity compensation programs. He has worked with small start-ups through the Fortune 100 for more than 15 years. In addition to being a frequent speaker in the US and abroad, Dan is on the board of the National Center for Employee Ownership, helps run ShareComp, a virtual conference for the share plan industry and heads Equity Compensation Experts one of the largest free networking groups for equity compensation professionals. Dan loves to share ideas and information. Follow him on LinkedIn or Twitter at @performensation.

The Men from NEPET Are Coming

Get your data ready... the men from NEPET are coming...

The Obama Administration has created the National Equal Pay Enforcement Taskforce (or, as I refer to it - NEPET). The task force will consist of members from the EEOC, the Department of Justice, the Department of Labor and the Office of Personnel Management.

NEPET has identified five "persistent challenges" regarding equal pay enforcement. One of these challenges is the government's ability to understand the full scope of the wage gap and to identify and combat wage discrimination.

To remedy this, NEPET is proposing to collect data on the private sector workforce to better understand the scope of the pay gap and to target enforcement efforts. As noted in the Report:

"Private sector employers are not required to systematically report gender-identified wage data to the federal government. This lack of data makes identifying wage discrimination difficult and undercuts enforcement efforts. We must identify ways to collect wage data from employers that are useful to enforcement agencies but do not create unnecessary burdens on employers."

NEPET is recommending the reinstatement of the OFCCP Equal Opportunity ("EO") Survey or a similar survey. The intention of the original EO survey was to increase compliance with equal opportunity requirements by improving self-awareness and encouraging self-evaluations and to improve the use of federal enforcement resources and improve efficiency by targeting those employers most likely to be out of compliance. NEPET believes that implementation of an EO Survey will allow (a) better identification of those employers likely to be out of compliance with respect to compensation discrimination, (b) narrowing of the issues on which the resulting review will focus, and (c) identification of employers for corporation-wide and industry-focused reviews.

They are also looking at revamping the EEO Reports. There are currently four versions of the EEO Reports, but only one of the four versions collects any wage-related data. The EEOC has examined the EEO Reports and data currently available. According to the Report, the EEOC has concluded that "there is no federal data source that contains private sector employer-specific wage data broken down by demographic category."

It's not clear what the revised EO and EEO Reports will look like, and we don't know what specific compensation information will be collected. We don't even know how the information collected will be used to identify employers who are "likely to be out of compliance". What we do know is that the current administration has placed pay equity near the top of its agenda. From the signing of The Ledbetter Fair Pay Act in January of 2008 to the recent push for passage of The Paycheck Fairness Act to the formation of NEPET, the Obama Administration is paying a lot of attention to pay discrimination. Because it's on the administration's agenda, it should be on the minds of employers everywhere. Start preparing now. Make sure that your documentation is up-to-date and that you're collecting and retaining the information you're required to collect and retain. That way you'll be ready when the men from NEPET come for your data.

 

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. For more than a decade, she's been working with businesses and government agencies providing expert EEO analysis. Stephanie has published several articles on examining compensation systems with respect to equity. She is the host of The Proactive Employer, and is the Director of the Equal Employment Advisory and Litigation Support Division of MCG.

The Many Forms of Too Little Recognition

In my last post, I wrote about too much recognition -- "When everyone is super, no one is." But you can only have too much recognition when that recognition is general or meaningless. Specific, authentic and actionable recognition can never be too much.

Far more common is too little recognition. Of course we're all familiar with the most common form of too little recognition -- never hearing any kind of appreciation for your efforts, except (perhaps) in the annual performance review. I and others in the Cafe have addressed this topic several times.

A less understood form of too little recognition lies more in program design and message delivery. Let me explain. A colleague's cousin, Ted, is an emergency room doctor. On his day off, Ted went to the hospital to sign charts. Seeing there was a very high volume of patients in the ER, Ted found a set of scrubs and treated numerous patients for several hours.

Ted didn't expect formal accolades for this effort. It's part of his job and his personal moral code. Just because it's his day off, he will not let patients suffer in the ER waiting room when he can do something about it. And then Ted found out a committee of leaders and some staff had voted for him to receive the "employee of the month" award. Via email that was cc'd to the entire team, Ted was notified of the designation and of his "reward" -- a voucher to the hospital dining room worth $25.

How did Ted describe his reaction? "Painful."

Why? The recognition itself -- knowing his colleagues appreciated his efforts on his day off -- meant something to Ted. But, and this is critical, further acknowledging that effort with a measly $25 voucher to the dining room -- worth one lunch and maybe a snack at break -- came across as miserly and demeaning. The "recognition committee" would have been better off either sticking with just verbal praise and acknowledgment or making a real reward commitment of greater perceived value. 

With this story in mind, think carefully on your employee recognition practices. Are you giving too little recognition? Do you perhaps have a recognition program that you believe to be effective but isn't filtering down through the various levels of management? Do you know what recipients really think about the recognition they're receiving?

As Globoforce’s CMO & Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin, Montreal and Boston. Follow Derek on Twitter at @globoforce.

Fewer Dollars = Unhappy Employees? Not Necessarily!

Last year well over 50% of employers cut their merit budgets or worse (eliminated them or cut base pay).  In a recent webinar I did for Salary.com, about 80% of the 200 or so attendees said they had cut or eliminated their salary increase budgets for the 2009. After the dust settled, 2009 pay increases were the lowest on record, under 2%.

While 2010 will see an increase in pay increase budgets (most studies are projecting 2.5% to 2.9% merit increases for 2010), these budgets remain at historically low levels, and the preliminary numbers for 2011 aren't much higher. Due to the extremely weak economic recovery, it's likely that even these low projected numbers will drop somewhat.

It's hard to imagine that the workforce will be too thrilled with these pay increases, especially when comparing them to what most employees typically received prior to 2009, but since nearly everyone will have modest budgets, it's not like they would do dramatically better elsewhere.  Of course, this assumes that your base pay and cash compensation programs are already competitive, that base pay growth and variable pay are tied to performance, and that you're taking care of your best employees. If not, these tasks should move to the head of your priority lists.

Countless studies in the past few years have shown that employee morale is dropping (and has been for two decades) and half or more or the workforce today is ready to seek out the proverbial "greener pastures" of a new employer.  But is pay the main issue driving  the discontent?  "No," say most of these studies. 

While competitive cash compensation is a critical element of any rewards program, once these basic needs are met, what's keeping the best performers with your company?  Assuming you've already taken care of these basic needs, it's your culture and how you manage and treat your people that can really make the difference (see my recent post on "Can't Buy Me (Workplace) Love" for more on this topic).  With employee loyalty and engagement at an all-time low, quality leadership and management are at a premium (see my colleague Laura Schroeder's excellent post on "...We Must Increase Our Trust") for additional supporting information.

But don't take our word for it. Check out the recent WorldatWork study on the linkage between various reward program elements and engagement. Bottom line: how your workforce is lead and managed is far more important than pay per se in determining workforce engagement and commitment.  The global recession has had a particularly negative impact on employee engagement according to a Hewitt study, but pay isn't the reason.

Both the WorldatWork and Hewitt studies make it clear that visible, trusted and communicative leadership are critical to maintaining high levels of engagement. While the focus of each study were somewhat different, neither study posits pay as a driving factor in employee commitment and engagement.

While pay is, and remains, a critical element in the attraction, retention and satisfaction of the workforce, it is far from the most critical factors in determining overall happiness, commitment and engagement of the workforce. If you've even worked in a "toxic" work environment for an employer that paid well, you'll easily relate.

Pay competitively and treat your workforce well. It's cheaper and more effective than trying to overcome poor people management with extra pay dollars.

Doug Sayed, SPHR, CCP, is principal with Applied HR Strategies, a Seattle-area compensation consultancy, and an instructor, periodic author and publications reviewer for WorldatWork.